DHL 2006 Annual Report Download - page 71

In , cross-border mail in Europe between Deutsche Post AG and  other
Western European postal operators was governed by the REIMS II agreement and
with another eight Eastern European postal companies by the REIMS East agreement.
ese agreements are currently being renegotiated.
e EU is also discussing the extent to which postal services should be exempt from
VAT. In , the European Commission published a directive proposal for a change
in the VAT exemption for postal universal services. However, without the required
unanimity in the European Council, the legislation was tabled in .
In correspondence dated April , , the European Commission initiated
infringement proceedings against the Federal Republic of Germany with regard
to the VAT exemption of postal universal services provided by Deutsche Post AG.
Germany considers the current VAT exemption to be in compliance with applicable
law and responded to the European Commission accordingly. e proceedings are
still under way. e German federal government has announced that it will review
the VAT exemption of Deutsche Post AG against the backdrop of the expiration of
the exclusive license on December , .
If tax were to be applied, the resulting risk would be cushioned by price increases.
e regulatory authority is of the opinion that the prices it approved are net prices
not including VAT.VAT could therefore be added to the approved prices. However, it
cannot be ruled out that the application of VAT would lead to a decrease in revenue
and earnings.
Business strategy risks
e MAIL Division is positioned as a one-stop provider of paper-based and hybrid
communication products. We have prepared extensively to face new risks, including
the pending deregulation of postal markets in Europe, the increasing competition in
Germany and the threat posed by electronic substitution. We intend to mostly oset
the expected loss of domestic market share with a consistent focus on customers,
new products and further internationalization of our mail business.
International expansion of the EXPRESS Division is a cornerstone of our company’s
future success. Becoming our customers’ preferred provider means ne-tuning
our global standardized business processes to meet diverse customer needs and
requirements. We are further extending our infrastructure in order to attain this
while keeping on track with our cost and earnings targets. In this connection,
temporary quality reductions in the course of complex infrastructure projects can
produce dips in revenue and earnings.
In the LOGISTICS Division, integration of the logistics provider Exel plc posed a
major challenge to the Group. Large numbers of integration projects, particularly
measures to boost workforce motivation and a focus on customer interests, have
reduced the risk situation to a minimum. To date, no material integration risks have
arisen. Having attained market leadership in the logistics business, we now aim to
further improve quality.
Risk Management 67
Deutsche Post World Net Annual Report 2006
Group Management Report